Trading Order Validation System and Method and High-Performance Trading Data Interface

ABSTRACT

A post-trade monitor receives feedback in the form of drop copy messages from an exchange server and validates orders placed with the exchange server by a sponsored access trading platform shortly after the orders have been placed. If a recently placed order is found to violate a rule or regulation, the monitor instructs the trading platform to change to a more restrictive trading mode, such as to cease placing all orders or certain types of orders, at least until certain parameters are met.

CROSS REFERENCE TO RELATED APPLICATIONS

This application is a divisional of U.S. patent application Ser. No.12/982,317, filed Dec. 30, 2010, titled “Trading Order Validation Systemand Method and High-Performance Trading Data Interface,” and thisapplication claims the benefit of U.S. Provisional Patent ApplicationNo. 61/295,389, filed Jan. 15, 2010, titled “Trading Order ValidationSystem and Method,” and U.S. Provisional Patent Application No.61/346,998, filed May 21, 2010, titled “High-Performance Trading DataInterface,” the entire contents of all of which are hereby incorporatedby reference herein, for all purposes. This application is related toU.S. patent application Ser. No. 13/087,906, filed Apr. 15, 2011, titled“High Performance Trading data Interface and Trading Data DistributionProtocol,” now U.S. Pat. No. 8,543,488.

TECHNICAL FIELD

The present invention relates to computerized trading environments andmore particularly to high-performance, low-latency interfaces betweenclient trading platforms and broker trading servers.

BACKGROUND ART

“High-frequency” securities traders and commodities traders(collectively herein referred to as “traders”) place and cancel many buyand sell orders (collectively “orders”), although some of the placedorders may never be filled. Essentially, the traders place a largenumber of orders with a goal of making gains, on the filled orders, morethan sufficient to cover costs associated with both the filled and theunfilled orders.

Often, the orders are placed according to “algorithmic trading” methods,in which computer systems called “customer servers” monitor marketprices, trading activity levels and other real-time data feeds andattempt to identify trades (“buy” or “sell” orders for particularsecurities, sometimes at particular prices, or cancellations orreplacements of previously placed orders) that may be advantageous. Thecustomer servers are often designed to allow traders to take advantageof very short lived market opportunities. Thus, very small latency times(typically measured in milliseconds or microseconds) between theidentification of potentially profitable trades and the placement of theorders with exchanges are required, because the real-time data, uponwhich the trade decisions are made, change rapidly and have very shortuseful lifetimes.

Most traders are not, however, members of exchanges (also referred to as“venues”), such as the New York Stock Exchange (“NYSE”) or NASDAQ.Consequently, these traders' customer servers cannot place ordersdirectly with the exchanges. Instead, the customer servers are oftencoupled via computer network links to computer systems called “brokerageservers” operated by or sponsored by brokers who are members of theexchanges. The brokerage servers may multiplex orders from many customerservers and electronically forward the orders to electronic tradingsystems (“exchange servers”) at the exchanges. A representativebrokerage server is described in U.S. Pat. No. 5,864,827, the entirecontents of which are hereby incorporated herein by reference.

Such “sponsored” access arrangements may forward orders withoutrestriction, or the brokerage servers may validate the orders to ensurethe traders do not violate rules or exceed predetermined limits andforward only orders that are successfully validated. Financialregulatory bodies, in conjunction with clearing brokers, often imposerules and regulations governing securities trading in various assetclasses, such as U.S. Equities, options, futures and European Equities.In addition, client and brokerage risk departments may impose a numberof restrictions. These restrictions, in aggregate, make up an ordervalidation path within a brokerage server, which may include checks on:human error; open-order exposure; “long” and “short” sale validation; aswell as on the aggregate dollar amount of “buy” orders a trader may havesimultaneously outstanding, compared to the trader's “buying power.”

Buying power means the amount of cash in the trader's brokerage account,plus an amount of “margin” (i.e., loan) that has been prearrangedbetween the trader and the broker. Brokerage servers typically imposelimits on orders placed by traders, such as to ensure the traders do notexceed their respective buying powers. For example, trades that wouldcause these limits to be exceeded are rejected by the brokerage servers.Brokers are motivated to enforce such rules and regulations, because thetrades are made under the brokers' identifications with the exchanges.Consequently, if a limit is exceeded or a trading rule is broken, thebroker may be sanctioned.

As noted, some prior art systems involve customer servers coupled viacomputer networks to brokerage servers which are, in turn,electronically coupled to electronic trading systems at exchanges,largely to reduce latency in placing the orders with the exchanges.However, many traders would prefer an arrangement that involves lesslatency. Removing the checks performed by the brokerage servers wouldreduce the latency. However, brokers are reluctant to transact such“naked” orders on behalf of their client traders, because of the risksof exceeding trading limits or violating other rules or regulations.

To speed up order processing and reduce latency, customer servers andbrokerage servers typically include high-performance computer hardware.Nevertheless, communication between customer application programsexecuted by the customer servers on the one hand, and order validationand order routing software executed by the brokerage servers on theother hand, is often slower than desired.

An embodiment of the present invention provides a method of facilitatinglow-latency communication of trading orders from a customer server to abrokerage server. Trading orders are received, via a switched fabriccommunications facility, from a customer application running on thecustomer server. The trading orders have been formatted into commands ofa dedicated trading command set for use over the facility. The receivedcommands are directed to a brokerage application running on thebrokerage server for processing by the brokerage server. The customerapplication communicates with the brokerage application over thefacility without protocol processing by either an operating system ofthe customer server or an operating system of the brokerage server.

Flow of the commands of the dedicated trading command set may becontrolled. The trading orders may be received according to a binaryprotocol. A compiled application programming interface (API) may beconfigured to be called directly by the customer application. The APImay receive the trading orders from the customer application.

The dedicated trading command set may include a place order command, acancel order command, a cancel and replace order command and a cancelall open orders command.

The “place order” command may include a fixed-length quantity field anda fixed-length price field, the contents of each of which areinterpreted as a binary value and not a string value. The place ordercommand may also include a fixed-length symbol field of a size less thana length of a longest symbol of a set of market symbols. If thefixed-length symbol field is too small to store a symbol associated withan order, an additional field may be appended to a command of thededicated trading command set. The appended field may have a sizesufficient to store the associated symbol. In response to receipt of atleast one command of the dedicated trading command set, an indication ofan aggregated buying power may be provided to the customer application.

If a parameter provided by the customer application is less than apredetermined length, the parameter may be stored in a fixed-lengthfield of a command of the dedicated trading command set. If theparameter is greater than a predetermined length, the parameter may bestored in an optional field of the command of the dedicated tradingcommand set.

In response to receipt of a command of the dedicated trading commandset, at least one callback routine may be executed in a first executionthread, separate from a second execution thread of the customerapplication that generated the received trading orders. The firstexecution thread may be selectively executed by a first processor,different than a second processor that executes the second executionthread, based on a parameter passed by the customer application or basedon a compile-time parameter.

Another embodiment of the present invention provides a low-latencycommunication interface. The communication interface may be used forcommunicating trading orders from a customer server to a brokerageserver. The communication interface includes an application programminginterface (API). The API is configured to be executed by the customerserver. The API is also configured to receive trading orders from anapplication program being executed on the customer server and format thereceived trading orders into commands of a dedicated trading commandset. The API is further configured to drive a first host channeladapter. The first host channel adapter is coupled via a switched fabriclink to a second host channel adapter of the brokerage server. The APIdrives the first host channel adapter so as to direct the formattedtrading commands, via the first and second host channel adapters and theswitched fabric link, to a brokerage application program being executedon the brokerage server.

The customer server may define a user process context, and theapplication program may be executed within the user process context. TheAPI may be further configured to be executed within the user processcontext to receive the trading orders. The API may be configured todrive the first host channel adapter from within the user processcontext, without operating system kernel mode protocol processing.

The dedicated trading command set comprises may include a place ordercommand, a cancel order command, a cancel and replace order command anda cancel all open orders command. The API may be configured to providean indication of an aggregated buying power to the customer application,in response to at least one command of the dedicated trading commandset.

An embodiment of the present invention provides a system for post-trademonitoring of orders placed by a customer trading platform with at leastone exchange server. The system includes a sponsored access post-trademonitor. The sponsored access post-trade monitor is distinct from thecustomer trading platform. For example, the sponsored access post-trademonitor and the customer trading platform may be separate computers. Thesponsored access post-trade monitor is configured to receive drop copymessages from the at least one exchange server. The drop copy messagesrelate to respective orders placed by the customer trading platform. Thesponsored access post-trade monitor is also configured to determine ifone of the orders placed by the customer trading platform caused thecustomer to exceed a trading limit established for a customer. Thedetermination is based at least in part on at least one of the receiveddrop copy messages. If one of the orders is determined to have causedthe customer to exceed the trading limit, the sponsored accesspost-trade monitor is configured to send a message, via a computernetwork, to the customer trading platform. The message instructs thecustomer trading platform to change to a less permissive trading mode.The system also includes an application programming interface (API) onthe customer trading platform. The API is configured to receive messagesfrom the sponsored access post-trade monitor. The API responds to themessages by altering a trading mode of the customer trading platform.

The application programming interface may be further configured toprovide an indication of the trading mode of the customer tradingplatform or to provide an indication of permissibility of a proposedtrade, according to the trading mode of the customer trading platform.In response to receiving a given message from the sponsored accesspost-trade monitor, the API may alter the trading mode of the customertrading platform. Possible modes include a mode enabling unrestrictedtrading, a mode enabling restricted trading and a mode disablingtrading. In one embodiment, the modes include: a mode permitting ordersthat increase account exposure and permitting orders that decreaseaccount exposure; a mode permitting orders that decrease accountexposure and prohibiting orders that increase account exposure; and amode prohibiting orders that increase account exposure and prohibitingorders that decrease account exposure.

The sponsored access post-trade monitor may be further configured todetermine if the limit is no longer exceeded. The determination may bemade based at least in part on at least one other of the received dropcopy messages. If the limit is no longer exceeded, the sponsored accesspost-trade monitor may send a second message, via the computer network,to the customer trading platform. The message may instruct the customertrading platform to change to a less restrictive trading mode.

To facilitate sharing information about trading events and a customer'strading limit with other systems, the sponsored access post-trademonitor may also include a communication interface configured tocommunicate via a computer network. The sponsored access post-trademonitor may be configured to send information about trading eventsrelated to the customer trading platform via the communicationinterface. In addition, the sponsored access post-trade monitor may beconfigured to receive information about trading events related to atleast one trading platform other than the customer trading platform, viathe communication interface. Furthermore, the sponsored accesspost-trade monitor may be configured to recalculate the trading limit,based on the received information about the trading events.

Another embodiment of the present invention provides acomputer-implemented method for post-trade monitoring of an order placedby a customer trading platform with at least one exchange server. Anelectronic drop copy message is received by a sponsored accesspost-trade monitor, which is distinct from the customer tradingplatform. The electronic drop copy message is received from the at leastone exchange server. The electronic drop copy message relates to theorder placed by the customer trading platform. A determination is madeif the order placed by the customer trading platform caused the customerto exceed a trading limit established for a customer. The determinationis made automatically, based at least in part on the received electronicdrop copy message. If the order is determined to have caused thecustomer to exceed the trading limit, a message is automatically sent,via a computer network, to the customer trading platform. The messageinstructs the customer trading platform to change to a less permissivetrading mode. The message from the sponsored access post-trade monitoris received at the customer trading platform. In response to themessage, a trading mode of the customer trading platform isautomatically altered.

Yet another embodiment of the present invention provides a system forpre-trade validation of proposed orders generated by a clientapplication program. The client application program may be controlled bya customer and executed by a customer trading platform coupled to atleast one exchange server. The system includes a communication interfacewithin the customer trading platform. The communication interface isconfigured to receive at least one message containing informationrelated to a trading limit for the customer. The message is received viaa computer network. The system also includes a market interfaceconfigured for connection to the at least one exchange server. Theconnection may be via a computer network, either the same computernetwork over which the communication interface receives the message(s)containing information related to a trading limit for the customer or adifferent computer network. An order verification module is disposedwithin the customer trading platform. The verification module is coupledto the communication interface and to the market interface. Theverification module is configured to receive the proposed orders fromthe client application program. In addition, the verification module isconfigured to determine if one of the received proposed orders wouldcause the customer to exceed the trading limit, if the order were placedwith the at least one exchange. The determination may be based at leastin part on the at least one message containing information related to atrading limit for the customer. If the trading limit would not beexceeded, the verification module sends the received proposed order, viathe market interface, to the at least one exchange server.

The order verification module may be implemented to run in a commonaddress space with the client application program on the customertrading platform. The order verification module and the market interfacemay be implemented to run in a common address space with the clientapplication program on the customer trading platform. The orderverification module may be implemented to run in a same process as theclient application program on the customer trading platform.

If the trading limit would be exceeded, the order verification modulemay be further configured to reject the proposed order. Optionally oralternatively, the order verification module may be further configuredto enter a trading mode in which the verification module permits ordersthat decrease account exposure and prohibits orders that increaseaccount exposure. In one embodiment, after a buying power of thecustomer exceeds a predetermined limit, the order verification module isfurther configured to enter a trading mode, in which the verificationmodule permits orders that increase account exposure. Optionally oralternatively, after at least a calculated aggregate value of sellorders have been filled, the order verification module may be furtherconfigured to enter a trading mode, in which the verification modulepermits orders that increase account exposure. Optionally oralternatively, if the trading limit would be exceeded, the orderverification module may be further configured to enter a trading mode,in which the verification module prohibits orders that increase accountexposure and prohibits orders that decrease account exposure. Optionallyor alternatively, after a buying power of the customer exceeds apredetermined limit, the order verification module may be furtherconfigured to enter a trading mode, in which the verification modulepermits orders that increase account exposure and permits orders thatdecrease account exposure. Optionally or alternatively, after at least acalculated aggregate value of sell orders have been filled, the orderverification module may be further configured to enter a trading mode,in which the verification module permits orders that increase accountexposure and permits orders that decrease account exposure.

In one embodiment, the order verification module is further configuredto dynamically alter a trading mode of the customer trading platformamong: a mode enabling unrestricted trading, a mode enabling restrictedtrading and a mode disabling trading. A transition of the mode of thecustomer trading platform may be based at least on the proposed ordersreceived from the client application program and the information relatedto the trading limit for the customer.

The order verification module may be further configured to dynamicallyalter a trading mode of the customer trading platform among: (a) a modepermitting orders that increase account exposure and permitting ordersthat decrease account exposure, (b) a mode permitting orders thatdecrease account exposure and prohibiting orders that increase accountexposure and (c) a mode prohibiting orders that increase accountexposure and prohibiting orders that decrease account exposure. Atransition of the mode of the customer trading platform may be based atleast on the proposed orders received from the client applicationprogram and the information related to the trading limit for thecustomer.

The order verification module may be further configured to recalculatethe trading limit, based on at least some of the proposed ordersreceived from the client application program.

To facilitate sharing information about trading events and a customer'strading limit with other systems, the customer trading platform mayinclude a second communication interface configured to communicate via acomputer network. The second communication interface may be coupled tothe order verification module. The order verification module may befurther configured to send information about trading events related tothe customer trading platform, via the second communication interface.In addition, the order verification module may be configured to receiveinformation about trading events related to at least one tradingplatform other than the customer trading platform, via the secondcommunication interface. Based on the received information about thetrading events, the order verification module may be configured torecalculate the trading limit.

A broker control system may be coupled via the computer network to thecommunication interface. The broker control system may be configured tosend the at least one message containing information related to thetrading limit for the customer. Optionally, the broker control systemmay also be coupled to at least one trading platform, other than thecustomer trading platform. In this case, the broker control system maybe configured to send information related to the trading limit for thecustomer to each of the at least one trading platform. Optionally, thebroker control system may be coupled to at least one post-trade monitorserver and configured to send information related to the trading limitfor the customer to each of the at least one post-trade monitor server.

An embodiment of the present invention provides a computer-implementedmethod for pre-trade validation of a proposed order generated by aclient application program controlled by a customer and executed by acustomer trading platform coupled to at least one exchange server. Atleast one message containing information related to a trading limit forthe customer is received, via a computer network. A proposed order isreceived from the client application program. Within the customertrading platform, it is automatically determined if the proposed orderwould cause the customer to exceed the trading limit, if the order wereplaced with the at least one exchange. The determination may be based atleast in part on the information related to the trading limit for thecustomer. If the trading limit would not be exceeded, the proposed ordermay be automatically sent to the at least one exchange server.

If the trading limit would be exceeded, a trading mode may be entered,in which orders that decrease account exposure are permitted and ordersthat increase account exposure are prohibited.

A trading mode of the customer trading platform may be dynamicallyaltered among: a mode enabling unrestricted trading, a mode enablingrestricted trading and a mode disabling trading. The mode of thecustomer trading platform may be based at least on the proposed ordersreceived from the client application program and the information relatedto the trading limit for the customer.

Optionally, the trading limit may be recalculated, based on at leastsome proposed orders received from the client application program.

Another embodiment of the present invention provides a brokered accesstrading server for pre-trade validation of proposed orders generated onbehalf of a customer by a customer trading platform for placement withat least one exchange server. The server may be implemented as acomputer system that includes a communication interface configured tocommunicate via a computer network. The computer system may beconfigured to receive the proposed orders from the customer tradingplatform and determine if one of the received proposed orders wouldcause the customer to exceed a trading limit, if the order were to beplaced with the at least one exchange. If the trading limit would not beexceeded, the computer system may send the received proposed order tothe at least one exchange server. In addition, the computer system maysend information about trading events related to the customer tradingplatform, via the communication interface. Furthermore, the computersystem may receive, via the communication interface, information abouttrading events related to at least one trading platform other than thecustomer trading platform. As a result, the computer system mayrecalculate the trading limit, based on the received information aboutthe trading events.

Yet another embodiment of the present invention provides acomputer-implemented method for pre-trade validation of a proposed ordergenerated on behalf of a customer by a customer trading platform forplacement with at least one exchange server. The proposed order isreceived from the customer trading platform. It is automaticallydetermined if the received proposed order would, if placed with the atleast one exchange, cause the customer to exceed a trading limit. If thetrading limit would not be exceeded, the proposed order is automaticallysent to the at least one exchange server. In addition, information abouttrading events related to the customer trading platform is automaticallysent, via a computer network, and information about trading eventsrelated to at least one trading platform other than the customer tradingplatform is received. The trading limit may be automaticallyrecalculated, based on the received information about the tradingevents.

Yet another embodiment of the present invention provides a system forvalidation of proposed orders generated on behalf of a customer by aplurality of customer trading platforms for placement with at least oneexchange server. The system includes a computer network interconnectingat least two servers. Each server is at least one of: a pre-tradevalidating brokered access trading server, a post-trade order monitorand a self pre-trade validating customer trading platform. Each serverincludes a communication interface configured to communicate via thecomputer network. In addition, each server is configured to determine ifan order would cause the customer to exceed a trading limit establishedfor the customer. In addition, each server is configured to sendinformation about trading events related to the server, via thecommunication interface, and to receive, via the communicationinterface, information about trading events related to the other of theat least two servers. Each server is configured to recalculate thetrading limit, based on the received information about the tradingevents.

An embodiment of the present invention provides an improved system forvalidation of orders from a customer trade server to a set of exchangeservers. The system is of the type including: (i) an order data base, onthe customer trade server, that stores order and trade data of acustomer being processed through the customer trade server, (ii) abroker order data base that stores order and trade data of the customertrade server made under authority of a broker and is used for pre-tradeorder validation purposes, and (iii) an interface between the customertrade server and the set of exchange servers for translating customerorders originating from an order output in the customer trade serverinto a standard protocol. The improvement includes a single order database coupled to the order output. The single order database stores orderand trade data of the customer being processed through the customertrade server. The single order database is resident on the customertrade server. In addition, an order validation module, operating undersupervision of the broker, is resident on the customer trade server. Theorder validation module is coupled to the single order database. Theorder validation module polices compliance of orders stored in the orderdatabase with trading parameters governing trading activity by thecustomer. A market interface is resident on the customer trade server.The market interface is coupled to the single order database andoperates under supervision of the broker. The market interfacetranslates orders of the customer into a standard protocol andcommunicates them to the set of exchange servers, so that the singleorder database is used by the customer trade server in storing order andtrade information of the customer while also being used for pre-tradeorder validation purposes by components under supervision of the broker.

The order validation module may be coupled over a network to a sponsoredaccess management module of a broker-operated server.

The order validation module, the market interface and the order outputmay be implemented to run in a common address space on the customertrade server. The order validation module, the market interface and theorder output may be implemented as a single process.

The single order data base may be included in a single trading data basealso resident on the customer trade server.

Another embodiment of the present invention provides a system forpost-trade validation of orders from a customer trading server to atleast one exchange server. The system includes a communication path toan application programming interface of a customer trading server. Thecommunication path may be used for sending control messages that controla trading mode of the customer trading server. A sponsored accesstrading monitor may be coupled over the communication path to theapplication programming interface. The sponsored access trading monitormay also be coupled, via a computer network, to at least one exchangeserver to which the customer trading server has transmitted at least oneorder. The trading monitor: (i) receives drop copy messages relating tothe at least one order from the at least one exchange; (ii) validatesthe at least one order; and (iii) responsive to a configured limitestablished for the customer, issues a control message over thecommunication path when required that can be used to control the tradingmode of the customer trading server.

Yet another embodiment of the present invention provides a method formanaging risk associated with trading of a customer utilizing aplurality of trading servers. A communication path to each of thetrading servers is used to send trading event messages to provide eachserver with updated trading event information from all of the othertrading servers. At each of the trading servers, the updated tradingevent information is aggregated in processes including at least one ofassessing compliance and managing risk with configured trading limits ofthe customer.

BRIEF DESCRIPTION OF THE DRAWINGS

The invention will be more fully understood by referring to thefollowing Detailed Description of Specific Embodiments in conjunctionwith the Drawings, of which:

FIG. 1 is a schematic block diagram of a pre-trade validated brokeredaccess securities trading system, according to the prior art;

FIG. 2 is a schematic block diagram of a non-intrusive, post-tradevalidated sponsored access securities trading system, according to anembodiment of the present invention;

FIG. 3 is a schematic block diagram of a pre-trade validated sponsoredaccess securities trading system according to another embodiment of thepresent invention;

FIG. 4 is a schematic block diagram of an information sharingarrangement among two or more of the pre-trade validated brokered accesssecurities trading system of FIG. 1, the non-intrusive, post-tradevalidated sponsored access securities trading system of FIG. 2 and thepre-trade validated sponsored access securities trading system of FIG.3, according to yet another embodiment of the present invention;

FIG. 5 is a schematic block diagram of a trading context in whichembodiments of the present invention may be practiced;

FIG. 6 is a schematic block diagram of a customer application showing anapplication programming interface (API) and callback routines, accordingto an embodiment of the present invention;

FIG. 7 is a schematic block diagram of a New Order Message, according toan embodiment of the present invention;

FIG. 8 is a schematic block diagram of an option field, which may beadded to the New Order Message of FIG. 7, according to an embodiment ofthe present invention; and

FIG. 9 is a flowchart of message flow control, according to anembodiment of the present invention.

DETAILED DESCRIPTION OF SPECIFIC EMBODIMENTS

As used in this description and in the accompanying claims, thefollowing terms shall have the meanings indicated, unless the contextotherwise requires.

Order—an offer to buy or sell a specified security, sometimes at aspecified price. An order may be cancelled or replaced with a differentorder. Securities are often identified by “symbols,” such as “MSFT” forMicrosoft Corporation.

Open order—an order that has been placed with an exchange, but that hasnot yet been filled. An order may be filled over time in several parts.For example, an order to buy 1,000 shares of a particular security mayresult in a purchase of 250 shares of the security, and then later apurchase of an additional 750 shares. Thus, between the two purchases,the order is partially filled.

Trading events—messages or information about events related to orders,in which the events alter a customer's buying power or another limitused to validate orders. Examples include: orders, executions andadministrative adjustments of an account, such as: an order being filledor partially filled, an order being cancelled and an order beingmodified.

Locates—sources of securities available for borrowing in support ofshort selling. Rules designed to ensure short sellers meet theirsettlement obligations require affirmative determinations, before thesecurities are sold short, that the short-sold securities will bedelivered or borrowed by settlement date. “Blanket” assurances (commonlyreferred to as “easy to borrow lists”) may be used for some securities.However, other securities (those on a so-called “hard to borrow list”)are considered difficult or unavailable to borrow for short sellingtransactions. Brokerages and investors must take extra measures, beforeshort selling such hard to borrow securities, to ensure theiravailability.

Position—a set of securities owned by a trader, including prices paidfor the securities (note that identical securities may have beenpurchased at different times for different prices); may also includedates on which the securities were bought; in some contexts, such aswhen calculating the trader's buying power, may also include currentmarket values of the owned securities.

Buying power—an amount of cash in a customer's brokerage account, plusan amount of “margin” (i.e., loan) that has been prearranged between abroker and the customer; an amount that is available for buyingsecurities, as calculated according to a set of rules. A broker may wishto prevent a customer from placing “buy” orders that, collectively,exceed the customer's buying power. Buying power can vary during atrading day. For example, if a customer issues a “buy” order, thecustomer's buying power may be reduced by the expected cost of thepurchase. Securities' prices can vary during a trading day, so thebuying power may need to be recalculated intraday, based on changes insecurities' prices. If a customer sells a portion of his/her position,profit from that sale may be added to the customer's buying power.However, a history of purchase prices may be necessary to accuratelycalculate the profit from a given sale, because the customer's positionmay include securities of a given symbol that were purchased atdifferent times and for different prices.

FIG. 1 is a schematic block diagram of a prior art securities tradingsystem in which orders are validated by a broker's trading server,before the orders are placed with an exchange. This arrangement iscommonly referred to as providing “pre-trade validation.” A customerserver (also referred to as a “client trading platform”) 100 is coupledto a client database 103. The client trading platform 100 typicallyreceives real-time data though an interface (not shown) about marketactivity. For example, a quote data feed from the market may providenear real-time information about recent trades and other activities,such as prices and symbols for traded securities, buy and sell offers,etc. The client trading platform 100 may store some or all of this datain the client database 103 and use this data, along with algorithms andparameters provided by trading analysts, to generate requests 106 to buyand sell securities.

These requests 106 are sent via a computer network 108 to a brokerageserver (also referred to as a “brokered access trading server”) 110. Theclient trading platform 100 may be remote from, or co-located with, thebrokered access trading server 110. Thus, the computer network 108 maybe a wide area network (WAN) or a local area network (LAN).

Ideally, the brokered access trading server 110 is configured tovalidate order requests received from the client trading platform 100.That is, ideally, the brokered access trading server 110 checks whethereach order request would cause a client to exceed the client's tradinglimit (such as the client's buying power) or otherwise violate a rule orregulation. To facilitate validating orders, the brokered access tradingserver 110 maintains a trading database 120, which stores informationabout individual traders' buying powers, such as the traders' positions,locates, etc.

If the order request would not cause a rule or regulation violation, thebrokered access trading server 110 generates an order and sends theorder 113 via a computer network (not shown) to an exchange server 116.(The brokered access trading server 110 may be connected to severalexchange servers 116, such as exchange servers 116 associated withvarious markets, such as the New York Stock Exchange (“NYSE”) andNASDAQ.) The brokered access trading server 110 also stores informationabout the order in the trading database 120. As noted, theabove-mentioned trading validations use information included in thetrading database 120. In practice, in prior art systems, there may besome difficulty in implementing the brokered access trading server 110to police all parameters governing trading activities of a client on anorder-by-order basis; indeed, some parameters are not easy to evaluateon an order-by-order basis.

The exchange server 116 sends status information back to the brokeredaccess trading server 110 to indicate whether the order 113 is filled bythe exchange or not. In some cases, the client trading platform 100sends an order request 106 to cancel or modify a previously placedorder. In these cases, the brokered access trading server 110 sends acancellation or modification order 113 to the exchange server 116.

The brokered access trading server 110 informs the client tradingplatform 100 of the status of orders, as well as updating theinformation in the trading database 120. The client trading platform 100may update the client database 103 with the status information about theorders. At the end of a trading day, data may be sent to a clearancesystem 123, which reconciles all orders and trades according to the netresult of the day's trading and generates invoices to reflect thereconciliation. Some brokers perform their own clearing, while otherbrokers use banks or other institutions to perform clearance work forthe brokers.

Systems, such as the one shown in FIG. 1, are in current use. However,some traders disfavor such systems, because of the latencies introducedby, among other things, the network connection between the clienttrading platform 100 and the brokered access trading server 110 and thenetwork connection between the brokered access trading server 110 andthe exchange server 116. To reduce these latencies, in some cases theclient trading platform 110 is co-located with the

brokered access trading server 110. In some cases, the brokered accesstrading server 110 is co-located with the exchange server 116.Nevertheless, some traders find the resulting latencies undesirablyhigh.

Non-intrusive Post-Trade Validation Monitor

To address traders' concerns over latencies of prior art systems, anembodiment of the present invention provides a sponsored accessarrangement, as exemplified schematically in FIG. 2, under which atrading server (here called a “sponsored access trading platform 200”)of a customer of a broker (also called a “client” of the broker)communicates directly with an exchange server 116 under authority of thebroker, but without the direct pre-trade validation provided byarrangements such as those described in connection with FIG. 1. Instead,the sponsored access trading platform 200 operates in one of severalmodes, which define whether the platform 200 may issue orders 203 and,if so, the types of orders 203 that may be issued.

A sponsored access post-trade monitor 206 monitors feedback, in the formof drop copy messages 226, from the exchange server 116, to validateorders 203 shortly after the orders 203 have been placed by thesponsored access trading platform 200 with the exchange server 116. If arecently placed order 203 is found to have caused a rule or regulationviolation, the sponsored access post-trade monitor 206 instructs thesponsored access trading platform 200 to change to a more restrictivemode, such as to cease placing all orders or certain types of orders, atleast until certain parameters are met.

For example, the sponsored access trading platform 200 may be placed ina mode that permits placing only orders that would decrease a customer'saccount exposure until a required minimum level of buying power isrestored. In the case of U.S. Equities, long sales, i.e., sales ofsecurities that are owned by the customer, would decrease accountexposure. On the other hand, if a customer held a short position, i.e.,if the customer placed a “sell” order for a security the customer didnot own, then buying the security would decrease the customer's accountexposure. Options may present more complex examples.

This sponsored access arrangement is called “non-intrusive post-tradevalidation.” One sponsored access post-trade monitor 206 may monitorfeedback resulting from orders placed by several sponsored accesstrading platforms 200, such as platforms 200 operated by differentcustomers, platforms 200 connected to different exchanges and/orinstances where multiple platforms 200 are required or desired to handleexpected trade volumes.

In this embodiment, at the beginning of a trading day, a broker controlsystem 210 determines trading limits for each sponsored customer,according to the customer's buying power, etc., and sends these limits,together with additional information (described below) to the sponsoredaccess post-trade monitor 206, which maintains a trading database 120,as described above. When the sponsored access post-trade monitor 206 isready to begin validating orders, the post-trade monitor 206 sends astate change message 213 to the sponsored access trading platform 200 toenable trading. The current mode of the sponsored access tradingplatform 200 is stored by an application programming interface (API)216. The broker may provide the API 216 to the customer for inclusion inthe sponsored access trading platform 200. In one embodiment, the modesinclude “Trading Disabled,” “Unrestricted Trading Enabled” and“Restricted Trading Enabled.” In another embodiment, unrestrictedtrading permits orders that would increase account exposure and ordersthat would decrease account exposure, while restricted trading permitsonly orders that would decrease account exposure.

A client application program 220, typically provided by the customer,executes under control of the customer on the sponsored access tradingplatform 200. The client application program 220 may receive quote datafeeds and/or other data streams (not shown), and the client applicationprogram 220 may maintain a client database 103 of this and otherinformation used to inform algorithmic trade generation. The clientapplication program 220 thus generates proposed orders for trades, asdescribed above.

However, for each proposed trade, the client application program 220calls the API 216 to ensure the proposed trade is permitted, accordingto the current mode of the sponsored access trading platform 200. Iftrading is unrestricted, or if the proposed order is permitted under acurrent restricted trading mode, the API 210 so indicates to the clientapplication program 220, and the client application program 220 sends anorder 203 directly to the exchange server 116. Alternatively, the API216 merely reports the current trading mode to the client applicationprogram 220, and the program 220 determines whether the proposed orderis permitted under the current mode. If a proposed order is notpermitted under the current mode, the client application program 220should not send the order to the exchange server 116. However, the API216 has no mechanism to enforce the current trading mode.

The sponsored access trading platform 200 generates the orders 203 underthe identification of the broker. Thus, the orders 203 appear to theexchange as having been issued by the broker. Optionally, the sponsoredaccess trading platform 206 may be connected to more than one exchangeserver 116, such as multiple servers in a single market or to individualservers in several respective markets. In this case, the API 216 maymaintain a separate trading mode for each of the exchange servers 116.

Order acknowledgements 223 (such as “order received,” “order filled,”“order cancelled,” “order cancelled and replaced,” etc.) are sent by theexchange server 116 back to the client application program 220. Theexchange server 116 generates “drop copy” messages 226, which areessentially copies of the acknowledgement messages 223 sent by theexchange server 116 to the sponsored access trading platform 200. Thesponsored access post-trade monitor 206 operated by the broker receivesthe drop copy messages 226 and validates the orders 203, as describedabove with respect to FIG. 1, except each validation occurs after thecorresponding order 203 has been placed with the exchange 116.

The sponsored access post-trade monitor 206 does not receive copies ofthe orders 203 sent by the sponsored access trading platform 200 to theexchange server 116. However, this order information may be useful ornecessary to perform order validation. In addition, this orderinformation may be useful or necessary to the broker, such as forend-of-day reconciliation. The drop copy messages 226 allow thesponsored access post-trade monitor 206 to infer order information forvalidating the orders 203 sent by the sponsored access trading platform200, such as by checking whether the customer has exceeded its buyingpower or violated a long sale and short sale rule or exceeded a limit,in a manner similar to that used by the brokered access trading server110 (FIG. 1) described above. The customer's buying power and otherlimits may be recalculated by the sponsored access post-trade monitor206 as orders are placed and filled. For example, as “buy” orders areplaced with the exchange server 116, the customer's buying power may becorrespondingly reduced, and as “sell” orders are filled, the customer'sbuying power may be correspondingly increased.

If the sponsored access post-trade monitor 206 detects a violation of arule or a limit that has been exceeded, the sponsored access post-trademonitor 206 sends a mode change command message 213 to the API 216,thereby changing the sponsored access trading platform 200 to a morerestrictive trading mode, i.e., to disable further trading or to allowonly certain types of trading until the limit or rule is no longerviolated. For example, if the order 203 that violated the limit causedthe customer to exceed his/her buying power, the mode change commandmessage 213 may cause the API 216 to allow only long “sell” orders(which, when filled, increase the customer's buying power) until thecustomer's buying power exceeds the customer's open orders. Depending onthe rule or limit that was violated or exceeded, the state changecommand message 213 may indicate all trading by the sponsored accesstrading platform 206 should be terminated or suspended, or only certaintypes of trading should be terminated or suspended.

The client application program 220 may be required to acknowledgereceipt of all mode change messages 213. For example, a contractualrelationship between the broker and the customer may require suchacknowledgements be sent within a specified amount of time to thesponsored access post-trade monitor, and failure to timely acknowledgereceipt of a mode change message 213 may be deemed a breach of thecontract. The receipts may be sent via the same network connection asthe mode change messages 213.

An exchange server 116 may include an executive port (not shown), bywhich the sponsored access post-trade monitor 206 may instruct theexchange server 116 to cease accepting orders from the sponsored accesstrading platform 200 and possibly modify or cancel one or more openorders. If so, and if the required acknowledgement is not timelyreceived, the sponsored access post-trade monitor 206 may optionallysend a message to the exchange server 116 requesting that the exchangeserver 116 cease accepting orders from the sponsored access tradingplatform 200. Optionally, the sponsored access post-trade monitor 206may instruct the exchange server 116 to execute, modify or cancel anorder on behalf of the client.

Depending on the limit or rule that was exceeded or violated, trading orunlimited trading may not be permitted to resume until a safety margin,relative to the rule or limit, is obtained. For example, “buy” ordersmay not be permitted until the customer's buying power is restored to apredetermined level above its minimum buying power requirement, or thata calculated minimum dollar value of securities be sold, to reduce thelikelihood that the next permitted “buy” order will again place thecustomer above its buying power limit. Once the sponsored accesspost-trade monitor 206 determines that the customer may resume tradingor may resume unlimited trading, the sponsored access post-trade monitor206 sends an appropriate mode change message 213 to the sponsored accesstrade platform 200.

The non-intrusive post-trade validated sponsored access arrangement,exemplified by the system of FIG. 2, typically exhibits less latencythan the brokered access arrangement, exemplified by the system of FIG.1, because traffic through the broker's trading server (i.e., thebrokered access trading server 110 of FIG. 1) is eliminated.Furthermore, processing delays associated with network communicationprotocols resulting from communications between the client tradingplatform 100 (FIG. 1) and the brokered access trading server 110(FIG. 1) are avoided. However, in the system of FIG. 2, the broker takesa greater risk in operating a post-trade validated sponsored accessarrangement, because orders are monitored directly by systems operatedby the broker only after the orders 203 have been placed with theexchanges 116. Thus, it is easier for a trader or an errant clientapplication program 220 to violate a rule or exceed a limit and continuetrading using this post-trade validated sponsored access arrangementthan using a pre-trade validated brokered access arrangement, as in FIG.1.

Pre-trade Validation Embedded Library

FIG. 3 schematically illustrates another embodiment of the presentinvention, which more actively monitors sponsored access trading, whilestill avoiding latencies associated with utilization of a separatetrading server operated by the broker. This embodiment, referred to asan “embedded pre-trade validation library arrangement,” provides acallable library 300, operated under supervision of the broker butimplemented on the customer's sponsored access trading platform 303. Thebroker typically provides the library 300 to the customer. The library300 provides an interface between a client application program 306 andthe exchange server 116. That is, the client application program 306calls the library 300 to place proposed orders. Because the library 300is interposed between the client application program 306 and theexchange server 116, the library 300 is able to validate all proposedorders and send only validated orders 310 to the exchange server 116.The library 300 rejects orders that would cause a rule to be violated ora limit to be exceeded. The library may also provide other services tothe client application program 306. For example, the library 300maintains a trading database 313 with information about open orders,positions, etc., used to validate proposed orders. The library 300 mayprovide access to some or all of this information to the clientapplication program 306, such as to satisfy requests for thisinformation by the trading algorithms employed by the client applicationprogram 306.

Such a system exhibits much less latency than the pre-trade validationbrokered access arrangement shown in FIG. 1, while providing pre-tradevalidation of orders that is absent from the non-intrusive post-tradevalidation sponsored access arrangement described above, with respect toFIG. 2. Furthermore, the proposed orders are validated using a tradingdatabase, resident on the client's sponsored access trading platform303, which may be shared with the client application program 306.

The client's sponsored access trading platform 303 provides an executionenvironment for a process 320, within which the client applicationprogram 306 and the library 300 execute. The library preferably includesan API 323, by which the client application program 306 may invokeroutines that provide services of the library 300. The library 300preferably shares an address space with the client application program306. Consequently, control and data may be passed more quickly betweenthe client application program 306 and the library 300 than by usinginterprocess or network communication techniques.

In this embodiment, at the beginning of a trading day, a broker controlsystem (BCS) 210 determines trading limits for each sponsored customer,according to the customer's buying power, etc., and sends thisinformation to a sponsored access manager server 333. The broker controlsystem 210 also sends this information 326 to the library 300 via a BCSAPI 330. The BCS API stores the trading limit information.

The client application program 306 executes under control of the client(i.e., the customer of the broker) on the sponsored access tradingplatform 303. The client application program 306 may receive quote datafeeds and/or other data streams (not shown), and the client applicationprogram 306 may maintain a database (not shown) of this and otherinformation used to inform algorithmic trade generation. However,because the trading database 313 includes much or all the data thetrading algorithms require, the client application program 306 may berelieved from gathering and maintaining its own data, as well asmanaging a database. The client application program 306 thus generatesproposed orders for trades, as described above.

As noted, for each proposed order, the client application program 306calls the library 300, and an order verification module 336 within thelibrary 300 tests the proposed order against the customer's tradinglimits. The order verification module 336 maintains information aboutopen orders, positions, locates, etc, so the order verification module336 can recalculate the customer's account exposure, buying power andother trading limits (collectively referred to as a “trading limit”)whenever necessary during the trading day. The order verification module336 uses the trading limit parameters and other information 326 sent atthe beginning of the trading day, recalculated intraday as needed,together with other data in the trading database 313 to validate theproposed order.

If a given proposed order satisfies the rules and limits, the orderverification module 336 invokes a market driver 340 to send an order 310directly to the exchange server 116. Order acknowledgements 343 are sentby the exchange server 116, as previously discussed. The orderverification module 336 updates the trading database 313 as needed, suchas when orders are filled. The exchange server 116 sends drop copymessages 346 to the sponsored access manager server 333, which storesinformation about filled orders and handles end-of-day clearance. Aswith the embodiment described above with respect to FIG. 2, thesponsored access trading platform 303 may be connected to pluralexchange servers 116.

On the other hand, if a proposed order does not satisfy the rules andlimits, the order verification module 336 so reports to the clientapplication program 306. In this case, the client application program306 can not send the proposed order to the exchange server 116, becausethe library 300 provides the only interface between the sponsored accesstrading platform 303 and the exchange server 116. In addition, the orderverification module 336 may change the state of the sponsored accesstrading platform 303 to disable further trading, or to allow onlycertain types of trading, until the limit or rule is no longer violated,as discussed above with respect to FIG. 2.

Thus, the library 300 reads from, and writes to, the trading database313 and provides access to information in the trading database 313 tothe order verification module 336 and to the client application program306. As noted, the client application program 306 may use information inthe trading database 313, such as information about the customer'scurrent positions, such as relative to certain securities, to generateproposed orders. The client application program 306 selects trades to bemade, as described above, except that the client application 306 isrelieved, by the library 300, from managing details of accessing thetrading database 313. Instead, the client application program 306 mayinvoke the library 300 to perform database access operations, such asqueries, reads and writes.

In contrast with the sponsored access arrangement of FIG. 2, the clientapplication program 306 (FIG. 3) need not include an interface to theexchange server 116, inasmuch as the library 300 includes such aninterface. Furthermore, the orders 310 are validated before the library300 sends the orders to the exchange server 116, unlike the post-tradevalidated sponsored access arrangement of FIG. 2. Thus, the sponsoringbroker is more protected against errant trading.

Information Sharing

A customer may prefer or require multiple sponsored access tradingplatforms 303, such as to handle a high volume of trades or to co-locateeach trading platform 303 with a corresponding exchange server 116. Theexchange servers 116 may be located in geographically dispersed cities.However, the multiple sponsored access trading platforms 303 may need toshare information to enable the order verification modules 336 tovalidate proposed orders. For example, the customer's buying power maybe shared by all of the customer's sponsored access trading platforms303. To facilitate such sharing, the library 300 may include a sharingprotocol module 350, which enables the order verification module 336 tocommunicate via a computer network 355 with order verification modules336 in other sponsored access trading platforms 303.

In one embodiment, each order validation module 336 originates messages(which may be multicast or unicast messages) containing information tothe other order validation modules 336 as the statuses of orders becomeavailable to the order validation module 336. These messages arereferred to as “trading event updates.” This activity may be driven byreceipt of the order acknowledgements 343. For example, each ordervalidation module 336 may multicast information about order fills orpartial fills, order cancellations, order modifications andadministrative adjustments to an account, as these events occur.Essentially, each order validation module 336 multicasts informationabout events related to orders placed by the validation module 336,where the events alter the customer's account exposure, buying power oranother limit used by the order validation module 336. The trading eventupdates enable the validation modules 336 to recalculate parameters,such as account exposure or buying power, intraday.

Optionally or alternatively, each order validation module 336 may sendits trading event updates to a central node, such as the sponsoredaccess manager server 333, and the central node may relay theinformation to all the other order validation modules 336.

Heterogeneous Arrangements

Some brokers may wish to offer sponsored access arrangements thatinclude a combination of validation methods, such as one or more of thearrangements described above, with respect to FIGS. 1, 2 and/or 3.Optionally or alternatively, some brokers or customers may wish toutilize plural servers for performance or co-location reasons. Aninformation sharing arrangement, similar to the one described above, maybe used to support such heterogeneous needs, as shown schematically inFIG. 4. Each of several client trading platforms 100 may be connected toone of several brokered access trading servers 110 to provide pre-tradevalidated trading, as described above with respect to FIG. 1. However,each brokered access trading server 110 may be modified to include asharing protocol module 400 to enable the brokered access trading server110 to send and receive trading event updates via a communicationnetwork 355. In addition, each brokered access trading server 110 may bemodified to recalculate trading limits, based on trading events that arerelated to other trading platforms. Each of the brokered access tradingservers 110 may be connected to one or more exchange servers 116, asdiscussed above.

Each of several sponsored access trading platforms 220 may be connectedto one of several sponsored access post-trade monitors 206, as describedabove with respect to FIG. 2. However, each sponsored access post-trademonitor 206 may be modified to include a sharing protocol module 400 toenable the sponsored access post-trade monitor 206 to send and receivetrading event updates via the communication network 355. In addition,each sponsored access post-trade monitor 206 may be modified torecalculate trading limits, based on trading events that are related toother trading platforms.

Each of several sponsored access trading platforms 303 may be connectedto a broker control system 210, as described above with respect to FIG.3. As noted, the sponsored access trading platforms 303 may includesharing protocol modules that send and receive trading event updates viathe communication network 355.

Thus, the interconnected brokered access trading servers 110, sponsoredaccess post-trade monitors 206 and sponsored access trading platforms303 essentially share trading limits per customer and update each otherwith information about trading events that may impact the shared tradinglimits. Each brokered access trading server 110, sponsored accesspost-trade monitor 206 and sponsored access trading platform 303 may usethe information it receives to recalculate the trading limits.

It should be noted that each brokered access trading server 110, eachsponsored access post-trade monitor 206 and each sponsored accessmanager server 333 may handle more than one sponsored client tradingplatform 100 or sponsored access trading platform 220 or 303, asappropriate.

Low-Latency Communication Interface

As noted, to quickly process orders and to keep latency low, customerservers and brokerage servers typically include high-performancecomputer hardware, and sometimes customer servers are co-located withbrokerage servers. Nevertheless, communication between customerapplication programs executed by customer servers, on the one hand, andorder validation and order routing software executed by brokerageservers, on the other hand, is often slower than desired.

Embodiments of the present invention provide highly optimized,low-latency communication methods and facilities between customerapplication programs and order validation and order routing software.Trading orders can, therefore, be delivered from the customerapplication programs to the order validation and order routingapplication programs quickly. In addition, status information may bequickly returned by the order validation and order routing applicationprograms to the customer application programs.

FIG. 5 is a schematic block diagram of a context in which such acommunication facility may be advantageously practiced. A customerserver (also referred to as a “client trading platform”) 100 isconnected to a brokerage server (also referred to as a “brokered accesstrading server”) 110. A customer application program 503, executed bythe customer server 100, generates trading orders, and a tradingvalidation and routing brokerage application program 506, executed bythe brokerage server 110, validates the trading orders and forwardsvalidated orders to one or more exchange servers 116, largely asdiscussed above.

However, the communication interface and methods utilized in thisembodiment are different than in the prior art. The customer server 100is coupled to the brokerage server 110 via a switched fabriccommunication facility 500, such as an InfiniBand network link. Inaddition, a highly-optimized, low-latency trading applicationprogramming interface (API) 510 provides an interface between thecustomer application program 503 and the brokerage application program506. The API 510 supports a set of trading calls that may be issued bythe customer application program 503. The API 510 formats trading ordersfrom the application program 503 into commands (messages) of a dedicatedtrading command set. The API 510 uses a specifically designed protocoland drives a host channel adapter 513 to direct the formatted tradingcommands (messages), via the switched fabric link 500, to the brokerageapplication program 506. The brokerage application program 506 thenprocesses the received commands. The API 510 avoids protocol processingby either an operating system of the customer server 100 or an operatingsystem of the brokerage server 110.

The brokerage server 110 includes a second host channel adapter 516 toterminate the switched fabric communication link 500. If necessary, thebrokerage server 110 executes a plug-in to translate messages receivedby the host channel adapter 516 into a format used by the brokerageapplication program 506, as explained in more detail below.

The API 510 supports a trading call set specifically designed for ordersfrom customer trading application programs. Table 1 lists an exemplaryset of trading calls. As shown, the number of calls is small, and allthe calls are specific to trading.

TABLE 1 Exemplary API Trading Calls Place Order Place an order for aspecific symbol Cancel Order Cancel a specific previously placed orderCancel/Replace Order Cancel a specific previously placed order andreplace it Cancel All Open Orders Cancel all open orders

The “Place Order” call may accept several required parameters, examplesof which are listed in Table 2. The customer application programspecifies an “Order ID,” so the API 510 may later provide statusinformation and use the Order ID to associate the provided statusinformation with the placed order. In addition, the Order ID can be usedlater to cancel a specific order or cancel a specific order and replacethe canceled order with another order. The Order ID should be unique fora given account throughout a trading day.

TABLE 2 Exemplary Parameters to Place Order API Call Order ID Unique IDfor all orders throughout day Symbol Security/commodity to be bought orsold Quantity Number of units (shares, etc.) to be bought or sold PriceScaled price at which to buy or sell (or zero for market price) Side(See Table 3 for possible values)

The “Price” may be specified as a scaled value, i.e., the dollar valueof the order may be obtained by dividing the “Price” parameter by apredefined constant price scaling factor, such as 10,000. Scaling theprice in this manner facilitates using an integer to store the “Price”parameter, thereby maintaining precision, while allowing forfractional-dollar prices. The price scaling factor may be selectable, asdescribed below. The API 510 may assume a limit order is being placedwhen a non-zero price is specified. A price of zero may be used tospecify a market order. A type of order may be specified by the “Side”parameter, exemplary values of which are listed in Table 3. Terms usedin Table 3, Table 4, Table 5, Table 6 and Table 8 have common well-knownmeanings.

TABLE 3 Exemplary “Side” Values (Order Types) Buy Sell Sell Short SellShort Exempt Buy to Cover

Optionally, an Order or a Cancel/Replace Order call may accept one ormore properties, examples of which are listed in Table 4 and Table 5.

TABLE 4 Exemplary Time In Force (TIF) Values Day Good throughout day;automatically cancelled at end of day (default) OPG Executed at nextday's opening IOC Immediate or cancel; any part unfilled immediately iscancelled Extended Day Applies to extended trading, beyond closing GoodTill Date Order good until a specified date At The Close Similar to OPG,but at close Time In Market Order good for a specified length of time

TABLE 5 Exemplary Peg Values (Applies only to limit orders) None PrimaryMarket Midpoint

Optionally, an Order or a Cancel/Replace Order call may accept one ormore flags, examples of which are listed in Table 6. Routing, as is wellknown, refers to sending an order to a specified market or forwardingthe order from that market to another market, such as when the requestedsymbol is available at a better price in the other market. Optionally,an Order or a Cancel/Replace Order call may include a route.

TABLE 6 Exemplary Flags Allow Routing Invisible Post Only ISO NASDAQPost Only

The “Cancel Order” call requires only an Order ID parameter. The“Cancel/Replace Order” call requires an Order ID of the order that is tobe canceled, as well as an Order ID for the replacement order, a newprice and a new quantity. The symbol is assumed to remain unchanged. The“Cancel All Open Orders” takes no parameters. If an order has beenpartially filled, the cancel request is effective for the unfilledportion of the order.

The other calls listed in Table 1 may accept parameters, flags, etc.similar to the parameters, flags, etc. discussed above, with respect tothe Place Order call.

As shown schematically in FIG. 6, to facilitate providing statusinformation back to the customer application program 503, severalrequired and optional callback routines may be defined in the addressspace 600 of the customer application program 503. For example, when anorder has been accepted by the exchange server 116 (FIG. 5), an “OrderAccept” callback routine 603 may be called. The customer may provide theOrder Accept callback routine 603 and may therein perform whateverprocessing the customer deems necessary or advisable. Similarly, when anorder has been filled, an “Order Filled” callback routine 606 may becalled. If an order is rejected, an “Order Rejected” callback routinemay be called. Other callback routines may include “Order Canceled,”“Order Replaced,” “Order Cancel Rejected” and “Route Status Changed.” Arouting status may change if, for example, a TCP connection to anexchange server fails.

To streamline processing within the customer application 503, thecallback routines may be called asynchronously. That is, algorithmictrading routines 610 within the customer application 503 may issue aseries of API calls, such as to place, cancel and/or replace orders,within one thread of execution, and the callback routines may beexecuted in a separate thread of execution, or each callback routine maybe executed in its own thread of execution. Optionally, the callbackroutines may be executed by a different (and optionally dedicated) corewithin a multi-core processor or by a different (and optionallydedicated) processor of a multi-processor system. An exemplary separateexecution thread or separate core or processor is indicated in FIG. 6 bya dashed box 613. The threading model, including whether a dedicatedcore or processor is used, may be specified, such as via a parameter,when the API is instantiated or via a compile-time parameter.

In addition, calls to the API 510 are non-blocking. That is, when an APIcall is made, the API 510 constructs and queues a message to be sent tothe brokerage application 506, and then the API 510 returns control tothe customer application 503.

It should be noted that each API call is likely to precipitate more thanone callback routine invocation. For example, a Place Order API call islikely to precipitate an Order Accept callback, as well as possiblyseveral Order Fill callbacks, if the order is filled in severalportions.

As noted, whenever a callback routine (except Route Status Changed) isinvoked, an Order ID is passed to the callback routine to identify theorder that precipitated the callback routine's invocation. In addition,whenever a callback routine is invoked, an “Event ID” may be passed. TheEvent ID uniquely identifies the event that precipitated the invocationof the callback routine. Event IDs may be used by the customerapplication program 503 to retrieve old messages, such as after aconnection (route) to an exchange server 116 has been restored.

When the Order Filled callback routine is called, order fill informationis also passed. The order fill information may include: a symbol of thesecurity or commodity of the filled order; a number of shares that werefilled; a scaled price at which the order was filled; a number of sharesremaining to be filled from the order; and a Market Liquidity Valueassociated with the order according to the market setting of the orderat execution. In addition, the Order Filled callback routine may bepassed a remaining aggregated buying power of a group of accounts.

When the Order Replaced callback routine is called, the Order ID of thereplacement order is also passed. When the Order Rejected or the OrderCancel Rejected callback routine is called, a reason code may be passed.When the Route Status Changed callback routine is called, a stringcontaining an identification of the route and a Boolean flag indicatingwhether the route is connected or not may be passed.

Returning to FIG. 5, in response to calls to the API 510, the APIgenerates and formats commands (messages) and sends the messages, viathe switched fabric communication facility link 500, to the tradingvalidation and routing brokerage application program 506. The API 510also receives messages from the trading validation and routing brokerageapplication program 506 and causes the appropriate callback routine(s)to be invoked. In addition, the API 510 sends and receives othermessages, such as heartbeat messages, that are unrelated to specific APIcalls, but that are used to maintain communication with the tradingvalidation and routing brokerage application program 506, such as if noorder-related messages have been sent for a predetermined amount oftime, such as about five seconds. Thus, the API 510 employs aspecialized trading communication protocol with the brokerageapplication program 506.

To minimize latency, message sizes are minimized. Several protocolfeatures contribute to minimizing message size. For example, eachmessage includes a small header (not shown in FIG. 7) that identifiesthe type of message being sent. In some embodiments, the header is onebyte in size. Table 7 lists exemplary message types.

TABLE 7 Exemplary Message Types Session Messages Login HeartbeatSequenceReset Logout LoginAccept LoginReject ClientSessionMax TradingMessages NewOrder Cancel CancelReplace CancelAll Callback MessagesAccept CancelAck ReplaceAck OrderReject CancelReject Fill

When an API 510 is instantiated, such as by a constructor routine (usingobject-oriented and C++ terminology), the API may automatically send aLogin message to the brokerage server 110 to establish a session. TheLogin message includes credentials, such as a user identification and atrading account identification. As a result of the Login message, theuser/trading account pair is associated with the resulting session. TheLogout message may be sent explicitly or, more typically, automaticallyas a result of closing the instance of the API 510. The Logout messagemay be sent by a destructor associated with the API.

Login requests may be accepted or rejected, such as because theproffered credentials are invalid or a maximum number of sessionsalready exists. As noted, Heartbeat messages may be sent between thebrokerage server 110 and the trading API 510, if no other message hasbeen sent for a predetermined amount of time, to enable the API 510 todetect a failure in the communication facility 500 or in either hostchannel adapter 513 or 516.

The brokerage server 110 may communicate with the exchange server 116using a protocol, such as the Financial Information Exchange (“FIX”),and generate or receive monotonically increasing sequence numbersassociated with transactions with the exchange server 116. In addition,the customer application 503 and the trade validation and routingapplication 506 each maintains a monotonically increasing Event IDassociated with orders, etc. Although the Event IDs need not becommunicated over the communication facility 500 (to help keep messagesizes minimum), the Event IDs should be kept synchronized between thecustomer application 503 and the trade validation and routingapplication 506. If a session between the customer application 503 andthe brokerage server 110 needs to be restarted, the trade validation androuting application 506 may notify the customer application 503 of thenext Event ID that should be used via the SequenceReset message.

The Trading Messages, such as NewOrder, are generated by the API 510 inresponse to API trading calls, described above with reference to Table1, made by the customer application 503. The Callback messages arereceived by the API 510 from the brokerage server 110 in response tovarious events, as described above, and, in turn, the API 510 invokesthe appropriate callback routines.

FIG. 7 is a schematic block diagram of an exemplary basic “New Order”message generated by the API 510, as a result of a Place Order call. Asa further example of how message sizes are kept to a minimum, numericdata is sent in a binary format, rather than as character strings. (Thisis referred to as a “binary protocol.”) For example, the Order ID,Quantity and Price fields shown in FIG. 7 are binary fields, unlike insome conventional financial protocols, such as FIX protocol, wherecharacter strings are used.

In addition, character strings are sent in small, fix-length fields,with an option to use additional fields, if necessary to send longstrings. Thus, when necessary, one or more option fields may be appendedto the basic message. A prototypical option 800 is shown schematicallyin FIG. 8. The option 800 includes an Option Type field 803, whichcontains a code that identifies the type data contained in an OptionBody field 806. The Option Body field 806 may be fixed length, where thelength is implied by the code in the Option Type field 803. Optionallyor alternatively, the Option Body field 806 may be variable length.Variable length Option Body fields may begin with a byte count, or theymay be terminated with a null byte.

Returning to FIG. 7, some parameters, such as Symbol, are typicallyrelatively short. For example, most symbols contain less than about sixcharacters. However, some infrequently used symbols, such as symbols foroptions, may be considerably longer. To minimize the length of most NewOrder messages, a short fixed-length field is used for the Symbol field703. However, if an order involves a symbol whose length exceeds thelength of the fixed-length Symbol field 703, the API 510 appends a“Large Symbol” option to the New Order message. The Large Symbol optionmay be a fixed-length option sufficiently long to contain the longestpossible symbol, or the option may be a variable-length option, asdiscussed above. Other exemplary options are listed in Table 8.

TABLE 8 Exemplary Options Time in Market Expire Time Peg DifferenceMaximum Floor Minimum Quantity

As noted, in response to other API calls from the customer application503 (FIG. 5), the API 510 generates and formats other messages to thebrokerage application 506. These messages collectively form commands ofa dedicated trading command set to the brokerage application 506. In theillustrated embodiment, the messages are transported over the switchedfabric communication facility 500 by the host channel adapters 513 and516.

The host channel adapter hardware 513 and 516, such as InfiniBandhardware, may be used to perform some protocol processing and relatedfunction, thereby offloading processors that execute operating systemsoftware or application-level software, such as the customer application503. In some embodiments, transmit and receive buffers are allocated inmemory on both the customer server 100 and the brokerage server 110, andthe host channel adapters 513 and 516 cooperate to transfer data betweenportions (“slots”) of the buffers to effect communication between thetwo servers 100 and 110 InfiniBand and other host channel adapterhardware often provide two communication paradigms, namely remote directmemory access or “RDMA” and send/receive. In the send/receive paradigm,a source issues a Send that describes a location of data to be sent, adestination posts a Receive that similarly indicates where the data isto be written, and a matching capability is used to associate a postedReceive to an incoming Send. Embodiments of the present invention mayuse either paradigm; however, the send/receive paradigm is preferred.

The API 510 provides a thin interface between the user application 503and the host channel adapter 513. This interface manages the bufferspace and, based on availability of slots, either allows or prevents thecustomer application 503 to send messages. This process is collectivelyreferred to as flow control and is illustrated in a flowchart in FIG. 9.

Some embodiments use network interface cards (NICs) and Ethernet orother network connections instead of host channel adapters and switchedfabric connections, such as InfiniBand connections. These embodimentsmay not benefit from all the host processor and operating systemoffloading or bypass described above. However, some users may prefer touse Ethernet connections, such as to due to the lower cost of Ethernethardware or to avoid distance constraints associated with InfiniBandconnections. Other users may prefer to use Ethernet connections, atleast during a transition period, as part of a phased implementationstrategy in which some portions of the disclosed high-performance tradedata interface are implemented before other portions of the interfaceare implemented. Even without the use of host channel adapters andswitched fabric connections, the disclosed binary protocol may be usedover Ethernet or other conventional network connections, and theadvantages associated with the binary protocol may be realized.

As the API 510 receives calls 900, the API checks availability of a slot903 in the receive buffer of the brokerage server 110. If a slot isavailable, the API allows 906 the customer application 503 to place amessage in the transmit buffer, and the message is transferred to thereceive buffer of the brokerage server 110 by the host channel adapters513 and 516. On the other hand, if no slot is available in the receivebuffer of the brokerage server 110, the API reports failure 910 to thecustomer application 503, and the customer application 503 may takeappropriate action.

Returning to FIG. 5, because the trade validation and routing brokerageapplication 506 performs checks on orders, few, if any, checks need tobe performed by the API 510 on the parameters passed to it by thecustomer application 503, thereby minimizing the amount of processingthe API performs, which contributes to the low-latency characteristicsof the interface. Furthermore, unlike some prior art interfaces, the API510 is compiled, rather than relying on an interpreter or a virtualmachine, such as a Java virtual machine. We have found that using avirtual machine to implement an API introduces some undesirablenondeterministic latency characteristics. Our compiled API 510 avoidsthese characteristics.

Some embodiments of the API 510 may be written in C++or anotherappropriate object-oriented or conventional computer programminglanguage. Furthermore, the API 510 controls the host channel adapter 513from within the user process context of the customer application 503,thereby avoiding context switches, socket interfaces and operatingsystem (i.e., kernel mode) protocol processing, as would be required by,for example, a conventional TCP/IP interprocess communication networkconnection. A compiled API 510 avoids the need for a virtual machine,its attendant separate process and the process context switching thatwould otherwise be required. Thus, the API 510 may be called directly bythe customer application 503 to receive trading orders from the customerapplication 503. Being called “directly” means without requiring acontext switch, as would be required if a virtual machine in a separateprocess were used.

Depending on the type of messages expected by the trade validation androuting brokerage application 506, and possibly on the type of messagesthe brokerage application 506 sends to the exchange server 116, messagesreceived by the brokerage server 110 may be delivered to the brokerageapplication 506 with or without first translating the incoming messages.For example, if the brokerage application 506 expects messages accordingto the FIX protocol, the messages received by the host channel adapter516 may need to be translated from a binary protocol to the FIXprotocol. If so, a plug-in module 520, such as a software plug-in, maybe interposed between the host channel adapter 516 and the brokerageapplication 506 to perform such a translation. On the other hand, if thebrokerage application 506 processes message according to a binaryprotocol, no translation may be necessary. Furthermore, depending on theprotocol required to communicate with the exchange server 116, messagesfrom the brokerage application 506 may need to be translated beforebeing sent to the exchange server 116. In either case, message copyingwithin the memory of a server 100 or 110 is avoided where possible, toavoid the time (and, therefore, latency) such copying would add to atransaction.

A post-trade monitor receives feedback in the form of drop copy messagesfrom an exchange server and validates orders placed with the exchangeserver by a sponsored access trading platform shortly after the ordershave been placed. If a recently placed order is found to violate a ruleor regulation, the monitor instructs the trading platform to change to amore restrictive trading mode, such as to cease placing all orders orcertain types of orders, at least until certain parameters are met. Alibrary provides an interface in a sponsored access trading platformbetween a client application program that generates proposed orders andan exchange server. The library provides pre-trade validation of theorders and sends only validated orders to the exchange server. A networkenables monitors, trading platforms and libraries to share informationabout customers' trading activities and locally recalculate customertrading limits resulting from these trading activities.

A low-latency interface between a customer server, such as a server thatemploys algorithmic trading methods to generate buy and sell orders forsecurities, and a brokerage server that validates such securitiestrading orders is optimized for handling the securities trading orders.The interface supports a trading command set specifically designed fororders from customer trading application programs, and the interfaceformats received trading commands into compact messages that are sentover a high-speed communication link to the brokerage server. Theinterface receives order acknowledgement messages and the like from thebrokerage server and invokes callback routines in the customer tradingapplication program to report status information

Each platform and each server described above may be implemented by aprocessor controlled by instructions stored in a memory. Similarly, eachapplication program described above may be executed by a processorcontrolled by instructions stored in a memory. Such a processor may be aseparate central processing unit (CPU), such as a microprocessor, or acore of a multi-core CPU. The memory may be random access memory (RAM),read-only memory (ROM), flash memory or any other memory, or combinationthereof, suitable for storing control software or other instructions anddata. Some of the functions performed by the sponsored access post-trademonitor, the sponsored access manager server, the APIs and the libraryhave been described with reference to flowcharts and/or block diagrams.Those skilled in the art should readily appreciate that functions,operations, decisions, etc. of all or a portion of each block, or acombination of blocks, of the flowcharts or block diagrams may beimplemented as computer program instructions, software, hardware,firmware or combinations thereof. Those skilled in the art should alsoreadily appreciate that instructions or programs defining the functionsof the present invention may be delivered to a processor in many forms,including, but not limited to, information permanently stored onnon-writable storage media (e.g. read-only memory devices within acomputer, such as ROM, or devices readable by a computer I/O attachment,such as CD-ROM or DVD disks), information alterably stored on writablestorage media (e.g. floppy disks, removable flash memory and harddrives) or information conveyed to a computer through communicationmedia, including wired or wireless computer networks. In addition, whilethe invention may be embodied in software, the functions necessary toimplement the invention may optionally or alternatively be embodied inpart or in whole using firmware and/or hardware components, such ascombinatorial logic, Application Specific Integrated Circuits (ASICs),Field-Programmable Gate Arrays (FPGAs) or other hardware or somecombination of hardware, software and/or firmware components.

While the invention is described through the above-described exemplaryembodiments, it will be understood by those of ordinary skill in the artthat modifications to, and variations of, the illustrated embodimentsmay be made without departing from the inventive concepts disclosedherein. For example, although some embodiments have been described withreference to block diagrams, those skilled in the art should readilyappreciate that functions, operations, decisions, etc. of all or aportion of each block, or a combination of blocks, of a diagram may becombined, separated into separate operations or performed in otherorders. Furthermore, disclosed aspects, or portions of these aspects,may be combined in ways not listed above. Accordingly, the inventionshould not be viewed as being limited to the disclosed embodiments.

What is claimed is:
 1. A system for post-trade monitoring of ordersplaced by a customer trading platform with at least one exchange server,the system comprising: a sponsored access post-trade monitor, distinctfrom the customer trading platform, configured to: receive drop copymessages from the at least one exchange server, the drop copy messagesrelating to respective orders placed by the customer trading platform;determine, based at least in part on at least one of the received dropcopy messages, if one of the orders placed by the customer tradingplatform caused the customer to exceed a trading limit established for acustomer; and if one of the orders is determined to have caused thecustomer to exceed the trading limit, send a message, via a computernetwork, to the customer trading platform instructing the customertrading platform to change to a less permissive trading mode; and anapplication programming interface on the customer trading platform andconfigured to receive messages from the sponsored access post-trademonitor and, responsive to the messages, to alter a trading mode of thecustomer trading platform.
 2. A system according to claim 1, wherein theapplication programming interface is further configured to provide anindication of the trading mode of the customer trading platform.
 3. Asystem according to claim 1, wherein the application programminginterface is further configured to provide an indication ofpermissibility of a proposed trade, according to the trading mode of thecustomer trading platform.
 4. A system according to claim 1, wherein theapplication programming interface is further configured, in response toreceiving a given message from the sponsored access post-trade monitor,to alter the trading mode of the customer trading platform to one of: amode enabling unrestricted trading; a mode enabling restricted trading;and a mode disabling trading.
 5. A system according to claim 1, whereinthe application programming interface is further configured, in responseto receiving a given message from the sponsored access post-trademonitor, to alter the trading mode of the customer trading platform toone of: a mode permitting orders that increase account exposure andpermitting orders that decrease account exposure; a mode permittingorders that decrease account exposure and prohibiting orders thatincrease account exposure; and a mode prohibiting orders that increaseaccount exposure and prohibiting orders that decrease account exposure.6. A system according to claim 1, wherein the sponsored accesspost-trade monitor is further configured to: determine, based at leastin part on at least one other of the received drop copy messages, if thelimit is no longer exceeded; and if the limit is no longer exceeded,send a second message, via the computer network, to the customer tradingplatform instructing the customer trading platform to change to a lessrestrictive trading mode.
 7. A system according to claim 1, wherein thesponsored access post-trade monitor: further comprises a communicationinterface configured to communicate via a computer network; and isfurther configured to: send, via the communication interface,information about trading events related to the customer tradingplatform; receive, via the communication interface, information abouttrading events related to at least one trading platform other than thecustomer trading platform; and recalculate the trading limit, based onthe received information about the trading events.
 8. Acomputer-implemented method for post-trade monitoring of an order placedby a customer trading platform with at least one exchange server, themethod comprising: receiving, by a sponsored access post-trade monitor,distinct from the customer trading platform, an electronic drop copymessage from the at least one exchange server, the electronic drop copymessage relating to the order placed by the customer trading platform;automatically determining, based at least in part on the receivedelectronic drop copy message, if the order placed by the customertrading platform caused the customer to exceed a trading limitestablished for a customer; if the order is determined to have causedthe customer to exceed the trading limit, automatically sending amessage, via a computer network, to the customer trading platforminstructing the customer trading platform to change to a less permissivetrading mode; and receiving, at the customer trading platform, themessage from the sponsored access post-trade monitor; and responsive tothe message, automatically altering a trading mode of the customertrading platform.